Taxes

One of my first recommendations to any new or aspiring self-publisher is that they treat their writing like a business. I insist that they establish at least a sole proprietorship and create a home office dedicated to the writing, publishing, and marketing of their books. Why? Well, for one thing, having your own business allows you to take valuable business-related deductions on your income tax. So it will surprise no one to find a whole chapter early in “The Second Mouse Goes Digital,” devoted to keeping records and explaining the deductions an author may claim.

It was also not much of a surprise when shortly after I published my book, the internet broke out in a rash of rumors about what the new tax bill was going to do to destroy the livelihood of independent authors. The worst of these predictions was that authors would no longer be able to claim deductions for their home offices.

Were the rumors true? No, of course not. At most, the new law simply strengthened the rules already in place and promised to enforce them strictly. And what were the rules? Despite the governmental double-talk, there are only two rules to follow.First, a home office must be used regularly and exclusively for business purposes. The office does not need to be a lockable separate room; you can use a closet, a part of a room separated in some way from the rest of the room, or any identifiable space. But you can’t get away with slapping a laptop on the end of the dining room table once in a while and pushing it out of the way when it’s time to eat. Nor can you call it an office if you only use it once in a while when you are bored.

Exclusivity is an important part of that definition. If you use the desktop computer to pay bills as well as to write the great American novel, it’s not a home office. You can’t let your teenager write her term paper or play games on your computer when you are not using it. Apparently the cat can walk across your keyboard, leaving gibberish behind, but for other family members, the rule is definitely “Paws Off!”

The second rule is that your home office must be the only fixed location of your business. You can’t claim to have a home office because you hate the drive to your employer’s office building. This is the part of the law that upset several academics. If you have an office provided by your company, you are expected to use it. If you are writing a scholarly monograph as part of your effort to gain tenure, you may work on it wherever you choose, including the local Starbuck’s. However you cannot claim to have a home office just because you have set up a comfortable place to write that monograph on weekends or late at night. That kind of writing is a part of your employment, and you have a fixed location for that employment there on campus. If, of course, instead of writing scholarly monographs, you spend your free weekends and evenings drawing manga comics, then create your own company and draw away. Just be sure to keep your regular job and your creative fantasies on separate computers.

So there it is. I still advise every self-publishing author to set up a company, create a home office, use whatever it takes—up to but perhaps not including razor wire—to keep the rest of the family away from your creative space, and then start keeping your records. Identify every purchase that goes exclusively to your use in your office, file folders holding receipts for postage, your other business expenses (the editor, the cover creator, the layout specialist), and the cost of the books you purchase for resale. Then you can deduct away!

Yesterday I talked
about all the lovely tax deductions writers can get. But I forgot to add the
most important point. You have to keep track of those expenses. Here’s how I learned to handle that "tacky"
detail.

One fateful year, I
received a terrifying call from my accountant, reminding me that because of the
high volume of sales of Beyond All Price in the last quarter of
2011, I owed the IRS a quarterly payment on my 2011 taxes. All she needed, she
told me, was a list of all my income and all (read: ALL) my book-related
expenditures over the past year.

Have I been keeping
those records? Well . . . sort of. I have a couple of file folders at the
corner of my desk into which I've been stuffing receipts and credit-card bills.
And I had started out last year by downloading a highly recommended program for
organizing those receipts. I just hadn't actually kept the records up to
date. Arrrghh!

Gamely I dug out all
those little slips of paper and opened my expense record, only to be horrified
by how complicated it was. It had a separate sheet for each month, with a
row for every day in the month. And each sheet had some 35 categories of
expenses, each with its own column on a spread sheet that measured some 18
inches across. That meant I was looking at over 8000 little cells to be filled
in before the actual calculations even began. I started sorting my little
pieces of paper into monthly piles. I didn't take long before I realized
that this program was major over-kill, and much too complicated.

When I couldn't find
a simpler version that seemed designed for the kinds of expenses writers and
indie publishers incur, I decided to design my own. The result is a
simple template that works on any computer that can handle Excel. It put
all my expenses onto just 1 page. Just set your page to portrait and under the
print function, scale to about 80% or 1 page wide and 1 page tall.

The layout is
simple. It has three sections: one for travel expenses, one for
day-to-day expenses, and one for including the figures for a dedicated home
office. You get just one cell for each expense during a given month, so you may
have to do a bit of addition on your own--adding all your postage, for example.
And travel mileage needs to be converted to cost by multiplying it by the IRS
allowance for mileage. (That's not as complicated as it sounds. The
current allowance is $0.50 a mile, so you just divide the number of miles by 2
and add a dollar sign.)

When you're finished
entering your numbers, the spreadsheet calculates each type of expense (in the
rows) over the course of the year and the total for each month (in 12
columns.) At the bottom right corner, you get the grand total.
Simple. There are also some blank rows, so if you need to add some
new categories, you can just type them in. The "total" formula is
already entered in the blank cell at the end of each row. I finished my
calculations in a single morning.

It was so easy that I
decided to share the template here. I’ll post it tomorrow.

OK, today is tax day, and like a lot of other people, you've spent the day buried in paper and mathematical scribblings. I went to the post office today on a non-tax related matter and had to wait in line to get a parking place. I gathered that most of the people in line were not there to buy stamps. Anyhow, it occurred to me that it must be time to remind my readers of a sure-fire way to save money on your taxes. It's too late for your 2014 return, but the outlook for 2015 can be much brighter.

How? One simple trick does it all. BECOME A WRITER!

The Internal Revenue Service has a soft spot for writers. Who
would have guessed! Once you admit that you are an author by claiming that
designation as your profession, the tax laws are on your side. Someone in
Washington actually understands that book production takes a long time, and
that you can work at it for years without making any proﬁt, because you are
still creating the book, not selling it. They will grant you your deductions
for expenses for up to ﬁve years before they start refusing your claims to be a
“real” writer. On your tax return, don’t list yourself as “store clerk” or “plumber’s
assistant” while you are writing. There’s a special designation for writers;
ﬁnd it and use it. Oh, you should keep your day job, but think of yourself as a
writer and regard “fry cook” as your hobby, not the other way around. Then
start collecting your deductions.

Have you set up your home ofﬁce? Then you have a place of
business. Measure the space in square feet, determine the square footage of
your entire house or apartment, and then ﬁgure out the percentage of the
residence that is exclusively used for business. (A 10’ x 12’ ofﬁce in a 1500
square foot house = 8% devoted to business use.) That percentage now applies to
all of your housing expenses that affect the entire space—heating and lighting
bills, rent or mortgage interest, insurance, homeowner association fees,
security system, and termite protection are all common expenses. You can’t
deduct painting the living room if you use the back bedroom as your ofﬁce, but
you can deduct 8% of the cost of a new roof, since that applies to the entire structure.

Next, take a look at your home ofﬁce and its contents. If you are
using an old card table and a folding chair for a desk, you probably can’t
deduct their cost, but if you go out and purchase a new computer desk, using it
only for your writing, its price will be deductible. New or fairly recent
electronics (computer, printer, external backup drive) can be deducted or
depreciated. The ﬁrst phone line into your residence is not deductible, but if
you add a second line for a fax machine or an 800 number for your business,
you’ve found another deduction.

Be sure to keep track of all expenses for ofﬁce supplies—pens,
pencils notepads, printer cartridges, diskettes, scotch tape, paper clips, ﬁle
folders, labels, a calendar, an appointment book, scissors, a rack to hold
current ﬁle folders. You can even deduct the cost of air, if you buy it in
compressed form and use it to clean your keyboard. (I use mine to chase the cat
off the desk, but the principle is the same.)

Think
advertising. Anything you have printed with the name of your company or the
name of your next book can be deducted as an advertising expense. Of course
you’ll have a supply of business cards, but you can also use the same size card
to announce an upcoming book. (I just had some printed with a picture of “The
Second Mouse” on them. I have a second set of half-size business cards with
photographs of Beaufort, SC, on them to advertise my next novel, The Road to
Frogmore.) Both were deductible, as are bookmarks that match your book
covers or brochures telling dealers and bookstores how they can order your
books.

Much of your book budget will go for travel—to research libraries,
book signings or writing conferences. If you travel by car, you can deduct the
exact mileage, so long as you keep a log or record of the odometer. You’ll be
asked for details of the car’s purchase price, its year and model, its VIN, and
its total mileage, so keep them handy. You’ll be able to deduct 50 to 55 cents
a mile if your travel is purely for business. I bought a magnetic company sign
for under $10.00. On business trips, I slap that on the front door of the
family sedan and turn the entire trip into a business expense. You can also
deduct hotel bills, parking fees, and bridge or road tolls if you keep records.

And ﬁnally,
you’ll need to keep careful count of the books you order for resale. With a
print-on-demand contract, you don’t have to keep a huge inventory on hand, but
you’ll need a constant supply of printed books to give away, to send to book
reviewers, to sell to your friends, to take with you to speaking engagements,
or to enter into book contests. You may be asked to report your sales and to
pay sales tax, so you’ll need to account for every copy you purchase. Be sure
to check with your municipal and state laws on sales tax. In my state, you
don’t have to report sales for tax purposes until your sales go over $3000.00,
but that may not be so for where you live. The ones you sell will cost you a
bit, but the ones you give away can be deducted.

For many authors, these expenses can mount up to a tax deduction
of several thousand dollars. Just remember that you are expected to be earning
a proﬁt after ﬁve years of effort. If you are making money, you can only deduct
expenses that exceed your income. If you are not making any money after ﬁve
years, the IRS will tell you that writing is now just your hobby and deny any
deductions. It will be time to declare your real occupation as fry cook or
plumber’s helper.

The Internal Revenue Service has a soft spot for writers. Who
would have guessed! Once you admit that you are an author by claiming that
designation as your profession, the tax laws are on your side. Someone in
Washington actually understands that book production takes a long time, and
that you can work at it for years without making any proﬁt, because you are
still creating the book, not selling it. They will grant you your deductions
for expenses for up to ﬁve years before they start refusing your claims to be a
“real” writer. On your tax return, don’t list yourself as “store clerk” or “plumber’s
assistant” while you are writing. There’s a special designation for writers;
ﬁnd it and use it. Oh, you should keep your day job, but think of yourself as a
writer and regard “fry cook” as your hobby, not the other way around. Then
start collecting your deductions.

Have you set up your home ofﬁce? Then you have a place of
business. Measure the space in square feet, determine the square footage of
your entire house or apartment, and then ﬁgure out the percentage of the
residence that is exclusively used for business. (A 10’ x 12’ ofﬁce in a 1500
square foot house = 8% devoted to business use.) That percentage now applies to
all of your housing expenses that affect the entire space—heating and lighting
bills, rent or mortgage interest, insurance, homeowner association fees,
security system, and termite protection are all common expenses. You can’t
deduct painting the living room if you use the back bedroom as your ofﬁce, but
you can deduct 8% of the cost of a new roof, since that applies to the entire structure.

Next, take a look at your home ofﬁce and its contents. If you are
using an old card table and a folding chair for a desk, you probably can’t
deduct their cost, but if you go out and purchase a new computer desk, using it
only for your writing, its price will be deductible. New or fairly recent
electronics (computer, printer, external backup drive) can be deducted or
depreciated. The ﬁrst phone line into your residence is not deductible, but if
you add a second line for a fax machine or an 800 number for your business,
you’ve found another deduction.

Be sure to keep track of all expenses for ofﬁce supplies—pens,
pencils notepads, printer cartridges, diskettes, scotch tape, paper clips, ﬁle
folders, labels, a calendar, an appointment book, scissors, a rack to hold
current ﬁle folders. You can even deduct the cost of air, if you buy it in
compressed form and use it to clean your keyboard. (I use mine to chase the cat
off the desk, but the principle is the same.)

Think
advertising. Anything you have printed with the name of your company or the
name of your next book can be deducted as an advertising expense. Of course
you’ll have a supply of business cards, but you can also use the same size card
to announce an upcoming book. (I just had some printed with a picture of “The
Second Mouse” on them. I have a second set of half-size business cards with
photographs of Beaufort, SC, on them to advertise my next novel, The Road to
Frogmore.) Both were deductible, as are bookmarks that match your book
covers or brochures telling dealers and bookstores how they can order your
books.

Much of your book budget will go for travel—to research libraries,
book signings or writing conferences. If you travel by car, you can deduct the
exact mileage, so long as you keep a log or record of the odometer. You’ll be
asked for details of the car’s purchase price, its year and model, its VIN, and
its total mileage, so keep them handy. You’ll be able to deduct 50 to 55 cents
a mile if your travel is purely for business. I bought a magnetic company sign
for under $10.00. On business trips, I slap that on the front door of the
family sedan and turn the entire trip into a business expense. You can also
deduct hotel bills, parking fees, and bridge or road tolls if you keep records.

And ﬁnally,
you’ll need to keep careful count of the books you order for resale. With a
print-on-demand contract, you don’t have to keep a huge inventory on hand, but
you’ll need a constant supply of printed books to give away, to send to book
reviewers, to sell to your friends, to take with you to speaking engagements,
or to enter into book contests. You may be asked to report your sales and to
pay sales tax, so you’ll need to account for every copy you purchase. Be sure
to check with your municipal and state laws on sales tax. In my state, you
don’t have to report sales for tax purposes until your sales go over $3000.00,
but that may not be so for where you live. The ones you sell will cost you a
bit, but the ones you give away can be deducted.

For many authors, these expenses can mount up to a tax deduction
of several thousand dollars. Just remember that you are expected to be earning
a proﬁt after ﬁve years of effort. If you are making money, you can only deduct
expenses that exceed your income. If you are not making any money after ﬁve
years, the IRS will tell you that writing is now just your hobby and deny any
deductions. It will be time to declare your real occupation as fry cook or
plumber’s helper.